Pitfalls of Outsourced Telemarketing

QUESTION

We need help with how to handle our third-party telemarketers. We use third-party telemarketers for a lot of purposes, such as contacting customers to offer overdraft protection or surveying actual and potential customers for loan products and services. What we believe we lack is a clear set of guidelines to manage these third-party telemarketers. How do we maintain oversight of these outsourced telemarketers?

ANSWER
If you are using third-party telemarketers but do not have a clear, unambiguous policy and procedures, fully monitored, periodically testable, and continually reviewed for such relationships, your financial institution is at high risk for regulatory violations.

So, let me begin this response with a stern warning: get compliance assistance immediately, no excuses, no explanations, and no dithering!

I will take the overdraft protection customers as a proxy for most other purposes of telemarketing. There is an “opt-in rule” under Regulation E that requires regulated financial institutions, before assessing overdraft fees, to obtain customers’ affirmative consent to covering overdrafts on automated teller machines (ATM) and one-time debit card transactions. Like any other bank regulation, this obligation applies whether the institution directly markets its debit card overdraft services or uses a third-party service provider to enroll customers in overdraft protection.

My answer is going to describe how a vendor’s aggressive marketing tactics violated Regulation E’s opt-in rule. I am going to provide an example of what can go wrong when the opt-in rule is violated, which is but one of many hurdles in the outsourced telemarketing space.

I am going to provide a Telemarketing Vendor Management Checklist that can be used to judge whether your institution’s vendor management policies are sufficiently comprehensive to stop telemarketing violations and thereby avoid tough regulatory enforcement actions. 

For the Telemarketing Vendor Management Checklist, click HERE. 

Or click below.

Outsourced overdraft telemarketing services can result in problems for banks that don’t closely monitor what the telemarketers are saying and doing. For instance, a large bank was sanctioned after the vendor it hired to sign card customers up for overdraft services failed to comply with the opt-in rule. In effect, the bank itself failed to comply because, according to an investigation by the Consumer Financial Protection Bureau (CFPB), the bank did not adopt internal controls that were adequate to the task of properly managing the vendor’s telemarketing behavior.

There are numerous internal controls. Here’s one: Call Calibration. What is it?

Call Calibration is a way to audit call sessions, whereby auditors listen to calls - either before or during the calibration session – and score them according to a specific set of metrics. The scores and findings are shared and any discrepancies are reconciled, either by refining the telemarketing scripts, for instance, or providing additional training for participants. A primary goal of call calibration is to assure that the telemarketers’ contact with the public conforms with regulatory compliance rules. Lenders Compliance Group is the only compliance firm with the widest array of mortgage compliance services that also offers Call Calibration compliance specifically designed for mortgage lenders.

For Call Calibration details, contact us for details, click HERE. 

Or click below.

Weaknesses in vendor management are among the types of compliance problems that may be revealed during a security incident or an internal audit. If the bank monitors and manages its outsourced telemarketing program, it should be able to substantially reduce its exposure to potentially million-dollar penalties as well as the cost of taking remedial actions after the violations come to light.

Don’t let this happen to your financial institution! Read on.

A national bank violated the opt-in rule and was charged with marketing and enrolling consumers in its account protection overdraft service in a manner that violated Regulation E, which implements the Electronic Fund Transfer Act.

The opt-in rule was adopted in 2009 when the Federal Reserve Board amended Regulation E. The rule requires financial institutions to obtain consumers’ affirmative consent – or opt in – to an overdraft service before assessing overdraft fees on ATMs and one-time debit card transactions. The opt-in rule also requires financial institutions to disclose any overdraft fees they will charge on covered transactions.

The opt-in rule had been in place for years, so the bank could not claim the need for time to transition from prior practices. When customer complaints grew, the CFPB investigated the bank’s overdraft service telemarketing practices and found cause to take enforcement action. To resolve the matter, the bank signed a consent order.

According to the CFPB, after the opt-in rule went into effect, the bank determined that the rule would have a significant negative impact on the bank’s fee revenues, so it embarked on an aggressive telemarketing effort to persuade its customers to opt in. The bank hired a third-party vendor to conduct the telemarketing campaign.

Now the plot thickens!

The bank incentivized the vendor to enroll consumers by rewarding it with additional income for hitting specified sales targets. The vendor, in turn, incentivized its customer service representatives (CSRs) to make sales by establishing sales quotas and requiring a certain number of sales per hour. CSRs who failed to achieve the required number of sales per hour were sent home early and were not paid for the remainder of the day. Not nice, but it got worse: those who continued to miss sales goals were terminated.

The CFPB alleged that, during the course of the multi-year telemarketing campaign, the vendor’s CSRs often stepped over the line, deviating from the marketing script and providing consumers with incomplete, inaccurate, or misleading information in an effort to convince them to enroll in the account protection service. The allegations included CSRs enrolling consumers in the account protection program without their consent. In numerous instances, for example, the CSRs did not ask the consumers if they wanted to opt-in, instead giving consumers a brief description of the product and then having them verify the last four digits of their Social Security numbers, which was the standard enrollment confirmation practice.

CSRs were also alleged to have misrepresented the fees that would be incurred after opting in (for example, stating that the account protection program was a free service) or the consequences of not opting in (such as stating that daily transaction and transfer fees, in addition to the overdraft fees, would be incurred).

Even as consumer complaints mounted, the bank continued to use the same vendor to conduct the opt-in call campaigns, while continuing to include financial incentives in the vendor’s contract tied to the number of consumers the vendor enrolled in the account protection program.

Inevitably, like night follows the day, the administrative action happened. Under the terms of the consent order reached with the CFPB, the bank agreed to review its records, ascertain who was enrolled in the account protection program through the opt-in telemarketing campaign, and allow those consumers the opportunity to validate their opt-in decisions. To ensure that the violations do not reoccur, the bank also agreed to develop and implement a written policy governing the management of vendors that market the bank’s products and services.

The hit to the bank: a cool $10 million!

To request information about Call Calibration, click HERE.

To request the checklist for Telemarketing Vendor Management, click HERE.

Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director
Lenders Compliance Group